The foreclosure process in Spain

Unlike other countries, in Spain the debtor responds to the mortgage with all his present and future assets; so failure to repay the mortgage has consequences not only with the loss of the house in the civil process of the foreclosure, but also with the seizure of bank accounts and other assets belonging to the debtor and guarantors of the loan/mortgage. Property appropriation for mortgage repayment is legally regulated in the Civil Code under Articles 1175 and 1849.

If for some reason the debtors do not keep up with the mortgage repayments, they may be included in defaulter’s lists such as ASNEF and/or RAI. This will prevent access to future funding for any purchase or a new loan/mortgage.

The seizure of payroll, pension or salary of a person is a legal measure to ensure the recovery of debts.

According to the new law approved on Friday 1st of July 2011, there is an untouchable amount of 961 euros, which cannot be seized.

The embargoed amount is based on the minimum wage in Spain, which for the year 2011 is set at 641 euros plus 50 per cent; 30 percent of this 641 euros is added for each family member that has no regular income, therefore in a family with two people in this situation, the salary which cannot be embargoed will be the first 1,350 euros.
The remaining amount of the salary will be embargoed in different percentages taking into account the minimum wage to which we referred previously.

I – Introduction

Chapter V of civil procedure 1/2000 regulates the foreclosure process in Spain. The execution of the foreclosure process under Spanish law is a civil procedure. The process is based on an execution of the mortgage deeds by filing a lawsuit.

The execution process is an instrument established by law for the forcible intervention by court in cases where the offender does not voluntarily comply with the provisions or obligations imposed by a sentence.

1) Legal regulations

Chapter V of civil procedure law 1/2000 regulates the foreclosure process in Spain (in particular articles from 681 to 698). Article 681 regulates the process for demanding payment of debts secured by pledge or mortgage. The article quotes “enforcing the payment of debts secured by pledge or mortgage may be executed directly with the property”.

This process would also be appropriate when the claim refers only to part of the capital, or when the creditor and debtor have agreed that the repayment of the credit is by deferred payments.

2) Process requirements

The main requirement for the action is the existence of a public mortgage deeds which have been signed at the notary office and inscribed at the land registry, the deed will include the specific requirements for the execution to be directed against the mortgaged property. These requirements are set out in Article 682.2:

The mortgage deed includes the price at which the mortgage property is valued, (based on an official appraisal). This will serve as a base price for the auction.

The domicile of the debtor for notifications and lawsuits will be included in that deed.

While in principle it is not possible to change the valuation/appraisal of the mortgaged property, the debtor’s domicile can change with the consent of the bank or financial institution as long as this doesn’t imply a change of the court jurisdiction.

3) Jurisdiction

The Judge will check for territorial competence. If he is not competent he will notify the competent tribunal plaintiff, as specified in article 546.

Article 684 specifies the appropriate jurisdiction for the proceedings i.e. “the Court of First Instance of the place where the property is located”.

4) Legitimation

The creditor has a standing when the mortgage deed is inscribed in the Land Registry (Registro de la Propiedad). If for any reason the mortgage doesn’t appear inscribed, the lawsuit will be dismissed.

II – Phases of the Execution

1) Execution request

Article 685 of the LEC regulates the requirements for civil lawsuit. The Mortgage law specifies that the legal claim will be initiated by a lawyer and an attorney at law or “procurador” and will include:

The mortgage deeds or a certificate of the page where they are inscribed at the land registry. (Articles 550, 573 and 574).

Notarial deeds certifying that the payment was claimed from the debtor and the owner of the property, at least 10 days before the execution request.

If there is no previous claim by notarial deeds then the process regulated by article 581 of Law 1/2000, will be followed.

Other information to be filed with the execution request:

The documents specifying the type of variable interest negotiated, enabling the calculation of the interest with a simple arithmetic operation.

Any legal reasons determining the certainty, the subsistence, the enforceability of the credit and the competent court.

Proof of identity of all the persons involved, including the attorneys.

The exact amount claimed.

2) Payment injunction

Article 581 of Law 1/2000 regulates the payment injunction: “There shall be no payment injunction when the executive demand is accompanied by an affidavit attesting that the payment injunction has been sent at least ten days in advance.”

The payment injunction will be sent to the domicile listed in the mortgage deeds and/or wherever the debtor can be found.

3) Registration certificates

The certificate issued by the land registry must state that the mortgage in favour of the claimant is subsistent and not cancelled; it will also certify the title of ownership and other rights, debts and liens that may exist on the property and will include a complete list of charges, mortgages or seizure orders or if there are no charges. The registrar will state his name, the date and place where the certificate was issued.

4) Notifications

Thirty days after the payment injunction, at the request of the plaintiff, the debtor or guarantor, the property will be auctioned. This is, in any case as provided for the auction house and date must be notified to the debtor.

5) Payment of the mortgage with the amount obtained at auction.

Once the mortgage principal, interest and costs have been paid the excess will be given to subsequent creditors or retained in another execution process; if there are no other mortgages or debts then the remainder will be delivered to the owner of the mortgaged property.